Do you know how to use a debit card and benefit from all its features? Check out this comprehensive guide for more details.
The convenience of using a debit card or plastic money, in general, is immense. For instance, you don't need to carry large chunks of cash everywhere you go to make your purchases. In fact, it is like having your entire bank account in your wallet.
But do you know all the ins and outs of making purchases with a debit card? Do questions like “What's the difference between running it as credit versus debit?” or “Is it safe to use my debit card online?” ever cross your mind? If so, we are here to help clear things out.
This piece teaches you everything you need to know about maximizing debit card usage. That is from understanding how it works to comparing it against credit cards. We'll also provide tips on using your debit card safely online and at stores and more.
Table of Contents
What Are Debit Cards?
A debit card is a payment card that is linked directly to a person's bank account. When you use a debit card to make a purchase, the money comes directly out of your checking account.
Debit cards can be used to make purchases in stores, online, over the phone, and even to withdraw cash from ATMs. They function similarly to cash or checks but offer higher convenience and more purchase options. For example, you can use them with platforms like Google Pay, Apple Pay, Samsung Pay, or Cash App.
Usually, debit cards are issued by your bank and bear the logo of the card network they are part of, such as Visa, MasterCard, or American Express. But don't confuse their functionality with that of credit cards. While credit cards allow you to borrow money from the card issuer to make purchases, debit cards just allow you to spend the money you already have in your bank account.
How to Use a Debit Card: How Does It Work?
Using a debit card is very straightforward. When making a purchase in a store, you simply insert or swipe your card through the point-of-sale terminal. Some stores may require you to choose between debit or credit, but either way, the funds come out of your linked checking account.
If you select debit, you will typically be asked to enter your PIN to verify the transaction. If you select credit, you will sign the receipt instead. In both cases, the money is deducted from your account almost instantly.
When shopping online or over the phone, you provide the debit card number, expiration date, and CVV code just like you would with a credit card. The merchant receives authorization, and the funds are placed on hold until the actual transaction goes through.
However, with a debit card, you can only spend what is available in your account. This includes any linked overdraft protection if you have it set up with your bank. Be sure to keep track of your spending to avoid overdraft fees.
Pros of Debit Cards
There are many advantages to using a debit card. These include:
- No debt or interest: With a debit card, you can only spend money you actually have available. This way, you don't have to worry about racking up interest charges or debt. It also makes it easier to stick to a budget.
- More widely accepted than checks: While checks are becoming less commonly accepted, debit cards are welcomed almost everywhere. Debit cards allow you to conveniently make purchases and pay bills at any time.
- Access to cash: Your debit card gives you 24/7 access to cash, whether at an ATM, bank teller, or cash-back at merchants. This makes debit cards more versatile than credit cards or checks.
- Rewards programs: Many banks now offer rewards programs tied to debit card use. This allows you to earn cash back, airline miles, gift cards, and other benefits.
- Safer than carrying cash: If your wallet gets lost or stolen, your debit card offers limited fraud protection, and your funds can often be recovered. Carrying large amounts of cash is always risky.
Cons of Debit Cards
Despite all those benefits, there are still some potential downsides to keep in mind when using a debit card. For instance:
- Overdraft fees: Perhaps the biggest risk with debit cards is that it's easy to overdraw your account and incur hefty overdraft fees accidentally. That's especially true if you don't closely monitor your balance. Most banks charge around $33 for an overdraft.
- Limited fraud protection: A credit card protects you from unauthorized charges. However, with a debit card, your real money is at risk until fraud is reported and refunded. Monitoring your account activity is key.
- No building credit: Debit cards don't allow you to build a credit history like credit cards do. Using a credit card responsibly helps boost your credit score over time.
- May require minimum balance: Some banks require you to maintain a minimum balance in your checking account to qualify for a debit card. Falling below the minimum could result in fees.
- Less Fraud Liability protection: If your card is stolen, you need to report it immediately. If not, you might incur a $50 liability charge for reporting within 2 business days or up to $500 if the report is made between 2 and 60 days. The liability charge is unlimited after 60 days.
Debit Card vs. Credit Card
While both debit cards and credit cards can be used to make purchases in-store and online, there are some key differences as follows:
- Money source: Debit cards pull funds directly from your checking account, while credit cards rely on a revolving credit line extended to you by the card issuer.
- Spending power: Your debit card is limited to the available balance in your account, whereas credit cards allow you to make purchases up to the credit limit.
- Overspending risks: It's generally riskier to overspend with a debit card since every transaction impacts your funds immediately. With a credit card, you have time to pay your bill before finance charges apply.
- Interest and fees: Debit cards don't charge interest, but credit cards typically have high-interest rates if you carry a balance to the next billing cycle. Also, debit cards can incur overdraft fees, while credit cards can have annual fees, cash advance fees, etc.
- Credit Reporting: Credit card activity affects your credit score, but debit cards do not factor into your credit reports. Responsible credit card use helps improve your creditworthiness over time.
- Rewards: Credit cards offer more attractive rewards programs and sign-up bonuses than debit card reward programs.
Debit Card vs. Credit Card Security
Debit cards and credit cards also have some differences when it comes to security. For example:
- Legal protection: Credit cards offer stronger legal protections against fraudulent charges or billing errors. The Fair Credit Billing Act limits cardholder liability to just $50. Debit cards have greater liability, depending on how quickly fraud is reported.
- Zero liability: Major credit card networks provide zero liability in cases of unauthorized use. Debit cards also offer zero liability protections in most cases, but recovering lost funds can be more difficult than credit cards.
- Freezing accounts: A credit card account can often be frozen instantly if the card is lost or stolen. Freezing a checking account with a debit card may take more time and impact other linked services like direct deposit.
- Cash access: If your debit card information is compromised, thieves will have access to the cash in your checking account. Stolen credit card information mainly puts your credit line at risk.
To maximize security, consumers should monitor debit card transactions frequently, set up account alerts, and avoid oversharing card information. You should also normalize simple things like covering the keypad when entering PINs. And ultimately, report fraud immediately.
See Related: How to Pay off Credit Card Debt
Is it Safe to Use a Debit Card Online?
Yes. It's generally safe to use your debit card for online shopping as long as you take precautions. For starters, only shop at secure websites that start with “https” and have the lock icon in the browser bar. Avoid sites with expired certificates or other errors.
Secondly, check that the site has updated security features like multi-factor authentication and encryption. If not, you might be putting your finances at risk when you transact on such sites.
The next thing to never do is to save your debit card information on retailer sites or apps. This gives fraudsters a better chance to access your card and account. Therefore, enter the pin each time you make a purchase.
Additionally, keep a close eye on your account activity to spot any unauthorized transactions. And be haste in reporting suspicious charges immediately after you notice them.
Lastly, only use sites that allow secure guest checkouts instead of requiring account creation. Share the bare minimum info.
Note: While debit cards do carry risks online, following general security best practices greatly minimizes the chances of issues occurring. Plus, the convenience and widespread acceptance of debit cards still make them a smart online shopping option for many consumers.
Can a Debit Card Be Used as a Credit Card?
This is a question that almost everyone has found themselves asking. And the answer is No. While you can choose credit instead of debit when processing a transaction, it doesn't mean your debit card turns into a credit card.
When you run a debit card transaction as credit, it simply means you sign for the purchase rather than enter a PIN. The funds still come directly out of your checking account associated with the debit card.
Processing as credit may allow you to:
- Circumvent PIN-only rules at places like self-checkout kiosks or gas pumps.
- Benefit from the additional fraud protections and dispute resolution process on credit transactions.
- Take advantage of credit-only discounts or promotions that some merchants offer.
The potential downsides here are that holds on funds may last longer, and you don't get the chance to enter a PIN for verification. Overall, using a debit card as credit provides flexibility when needed.
Can I Run My Debit Card as Credit If I Have No Money?
While you can process your debit card transaction as credit, it will only go through if you have enough funds available in your checking account. Running it as credit does not provide access to a credit line.
Therefore, when you swipe your debit card as credit, the merchant just places an authorization hold on the pending transaction. The hold falls off if the full transaction doesn't post within a few days.
If your account balance is insufficient at the time the transaction settles, it will be denied despite the initial authorization. You cannot rely on running a debit card as credit to make purchases exceeding your current account balance.
However, in some cases, the purchase may inadvertently go through and trigger an overdraft fee. Banks can elect to honor over-limit debit transactions, in which case you'd be charged an overdraft fee according to your account terms.
So, to avoid declined transactions or overdrafts, be sure to confirm that your available checking balance is adequate before making purchases with your debit card. That's regardless of whether you select credit or debit. You cannot count on processing as a credit to get around low funds.
Can You Use Debit Cards at Hotels?
Yes, most hotels accept and process debit cards just like credit cards, with just a few additional requirements or notes.
For example, hotels may place an authorization hold on your checking account when you check in, often equal to the total estimated stay plus additional incidental charges. This hold reduces your available funds until checkout, when the true charges are settled.
If the authorization exceeds your account balance, the transaction may be denied. Larger holds increase the chances of this happening.
And did you know that some hotels can still charge your debit card after checkout for incidentals like room service or damages without re-authorization? That's why you should always monitor your transactions.
Also, remember unlike with credit cards, hotels are not required to remove unauthorized fraud charges from a debit card. You need to report them quickly to minimize losses.
Overall, debit cards are convenient and widely accepted by hotels nowadays. Just be cautious about holds, reducing your available funds, and monitor charges carefully both during and after your stay.
How to Use a Debit Card at a Store
Using your debit card at a store checkout is very quick and easy. Follow these basic steps:
- When it's time to pay, insert your debit card into the point-of-sale terminal slot with the chip facing up and the magnetic stripe facing down.
- The terminal will likely prompt “Debit or Credit?” Choose whichever option you prefer. Both take funds from your checking account.
- For debit transactions, enter your 4-digit PIN when prompted. Make sure to shield the keypad from bystanders when typing your PIN.
- For credit transactions, you'll be asked to sign the receipt. Sign your name matching the one on the back of your card.
- Keep the merchant copy of the receipt as proof of purchase and to verify your transactions later.
- Wait for the terminal to approve the transaction before removing your card. Place it back in your wallet securely.
- Monitor your account to ensure the final charge matches the receipt.
Will Getting a New Debit Card Stop Recurring Payments?
When you receive a replacement or renewed debit card from your bank with a new card number and expiration date, you may wonder what happens to any recurring payments you previously set up.
Well, getting a new debit card number will not automatically stop recurring payments from posting to your account. As long as your underlying checking account remains open, the recurring transactions will likely continue.
Here are two common scenarios when you receive a new debit card:
- Updated card data: If the merchant has a way to automatically receive updated card information from the bank, the payments will seamlessly continue posting to your account without interruption.
- Declined payments: If the merchant doesn't have access to the new details, payments may start getting declined once the old card number expires. You'll need to provide your new debit card number to the merchant.
Therefore, personally updating all your details is always a smart idea to avoid disruptions. When you update the card number and expiration date, also update any merchants, subscriptions, or memberships associated with recurring payments on your debit card.
Alternatively, if you wish to stop payments altogether when receiving a new debit card, you must directly notify each company and cancel those authorizations. A new card alone will not cancel them. Also, ensure that you monitor your account to confirm cancellation.
How is a Debit Card Like a Check?
Debit cards and paper checks share quite a few similarities. These include:
- They both draw funds directly from your checking account when used to make purchases or pay bills. The money comes straight out of your available balance.
- Neither debit cards nor checks allow you to borrow money or pay with credit. You can only spend existing funds in your account.
- They offer more limited fraud protections compared to credit cards since they directly impact your cash. It's important to catch unauthorized charges quickly.
- Checks and debit transactions both require your personal information. Signatures and PINs are needed at the point of transaction.
- Debit card and check transactions appear on your bank statements, allowing you to closely monitor account activity. Receipts also provide paper trails.
- Overdrafting with a debit card or bounced check will lead to insufficient fund fees charged by your bank if your balance can't cover the transaction amount.
The main difference is that debit cards offer much more convenience and are accepted at far more locations than paper checks. But both can safely be used to pay from your checking account funds.